Few institutions are more enthusiastic about international commercial arbitration than the U.S. Supreme Court. In the 1994-1995 term, the Court decided four significant arbitration cases. Its decision in Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer is perhaps the most important of these decisions for international practitioners.

Foreign arbitration clause enforceable

The Sky Reefer case holds that an arbitration clause requiring arbitration in a foreign country is not invalid under the 1936 Carriage of Goods by Sea Act (COGSA). Section 3(8) of COGSA makes unenforceable any contract term that purports to lessen the liability of the carrier or ship for loss or damage to goods. The Court concludes that a foreign arbitration clause does not "lessen liability" within the meaning of that subsection.

This decision is consistent with the decisions in Scherk and Mitsubishi that enforce arbitration clauses notwithstanding long-standing U.S. securities law and antitrust policies. In doing so, the Court disapproves the well-known Second Circuit 1967 decision in Indussa Corp. v. S.S. Ranborg, which held that a clause selecting a foreign judicial forum was unenforceable under COGSA.

Proposed legislative modification

The Maritime Law Association of the United States has before it draft legislation that would modify the result in the Sky Reefer decision. Under this proposed revision of COGSA a foreign arbitration clause would be enforced as an agreement to arbitrate in the United States. The MLA is presently holding hearings on the proposal and the Association's membership will vote at its meeting in May 1996.

Agreement to arbitrate in form contracts

The Court's decision in Sky Reefer implicitly raises serious questions about the enforcement of arbitration clauses in form contracts. Both the Federal Arbitration Act and the 1958 New York Convention on recognition and enforcement of foreign arbitral awards requires not only that the parties agree to arbitrate but that the agreement must be in writing.

Does a preprinted arbitration clause in a bill of lading satisfy this "written agreement" requirement? The Court implicitly assumes the answer is yes, but the Court's opinion demonstrates how far it has moved from the Bremen v. Zapata Off-Shore Co. case. In that 1971 decision, the Court enforced a forum-selection clause because, as the Court stated several times, commercially-sophisticated commercial parties had carefully negotiated the contract with that clause. In Sky Reefer, on the other hand, the first time one of the parties saw the arbitration clause is when it was required to reimburse a bank for payment under a letter of credit.

Arbitration in Japan

In Sky Reefer a New York partnership purchased organges from a Morrocan supplier. The supplier shipped the fruit by a ship owned by a Panamanian company and time-chartered to a Japanese company. The Japanese company issued a bill of lading to the shipper, who presented it to a bank under a letter of credit opened by the New York partnership. The form bill of lading included a clause which provided that any dispute would be referred to arbitration in Tokyo by the Tokyo Maritime Arbitration Commission. It also stated that Japanese law governed the bill.

When the ship arrived in Massachusetts it was discovered that the cargo had shifted causing over $1 million damage. Following partial reimbursement from its insurer, the purchaser and the insurer brought suit against the owner and the ship. The defendants moved to stay the action and to compel arbitration. The federal district court granted the defendants' motion but retained jurisdiction. The First Circuit affirmed, holding that even if the arbitration clause lessened liability nevertheless the Federal Arbitration Act preempted COGSA.

Majority opinion

The Supreme Court concluded that the arbitration clause did not lessen liability within the meaning of section 3(8) of COGSA. The Court therefore did not have to decide whether the FAA had precedence as a the later and more narrowly-drafted law because there was no inconsistency between the FAA and COGSA on the Court's reading.

A majority of the Court distinguishes between liability and the means of enforcing this liability. COGSA establishes principles of liability. A carrier must, for example, exercise due diligence to make the ship seaworthy. A forum-selection clause, on the other hand, merely designates a mechanism for enforcement of this duty. Thus, the majority concluded that the arbitration clause does not lessen liability--i.e., change the principle of liability--within the meaning of section 3(8).

In support of this interpretation, the Court noted that no other country had interpreted the Brussels Convention of 1924 (the source of COGSA) to prohibit foreign arbitration clauses.

Choice of Japanese law

Plaintiffs also argued that the choice-of-law clause lessened liability because there was no guarantee that the Japanese arbitration panel would apply COGSA. The Court concludes, however, that it was premature to complain because the panel had not yet acted and, borrowing from its reasoning in Mitsubishi, the plaintiffs would have an opportunity for review at the time the award was enforced. The district court had retained jurisdiction. Plaintiffs therefore have an opportunity to have any arbitral award reviewed.

Justice Stevens dissents

Drawing heavily both on history and practical consequences, Justice Stevens dissents. He rejects the narrow reading of section 3(8) of COGSA by looking to the harm addressed by the statute: the carrier's ability to control the terms of a bill of lading without having to negotiate with a shipper or consignee.

Justice Stevens notes also that the Court overturns a consistent line of cases following the 1967 Indussa decision of the Second Circuit. Stare decisis, he suggests, is particularly important for commercial transactions.

The Japan Shipping Exchange, Inc. traces the creation of its arbitration commission to 1926. To carry out the work of this commission the Exchange has adopted "Maritime Arbitration Rules" (Kaiji Chsai Kisoku). The Exchange has published an English-language translation of these rules in a 1985 pamphlet entitled Tokyo Maritime Arbitration Rules. Among the maritime disputes referred to the arbitration commission are ones involving carriage of goods by sea and bills of lading. A 1986 report notes that more than 800 disputes annually are referred to the department but that a great majority of these are resolved by counselling. A significant number of cases heard by an arbitral panel are settled. The 1986 report notes, for example, that of the 274 cases sent to arbitration between 1926 and 1984 only 175 awards were rendered. These awards are eventually published in a series of Japanese collected maritime awards, Nihon Kaiji Chsaihandan Ch.

Information about the arbitration department of the Japan Shipping Exchange, Inc. may be found in the report on Japanese arbitration written by Prof. Teruo Doi and found in 2 ICCA, International Handbook of Commercial Arbitration (Albert Jan van den Berg & Pieter Sanders eds.).